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Detroit’s fresh start

 

U.S. Judge Steven Rhodes

U.S. Judge Steven Rhodes

“This once-proud city cannot pay its debts… At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity.”  — U.S. Judge Steven Rhodes

Judge Steven Rhodes, who approved Detroit’s emergency manager-led bankruptcy filing, says the city is poised for a fresh start. For those budget-minded folks, the bankruptcy presents an opportunity to get Detroit’s fiscal house in order. EM Kevyn Orr says, “We have to be fair and equitable in our treatment with all creditor classes, whether they’re financial creditors or whether they’re retirees and the like and that’s what we’re going to try and do.”

Believe the hype and Detroiters should expect better days and improved city services. A closer look proves devastating. Expect pensions and healthcare to be cut. Hungry seniors. Art sales. Other cultural and economic assets transferred.

Listen uncritically and hear EM Orr’s assessment of the problem: The debt and current pension and healthcare costs have crippled the city. Almost 40 percent of the budget goes to paying benefits.

This is why an emergency manager-led bankruptcy is so violent. Part of a plan from Gov. Rick Snyder who will undoubtedly be heralded by the Republic Governors Association for creating the model for which all the city and states dealing with pension and benefit obligations can shake off their burdensome obligations.

The case in which the nation breaks its promise to American workers — your parents and grandparents — who you must now take care of in addition to your children. This is the economic crunch. The shift. The articulation of growing income inequality in America — the end of the middle class.

Perhaps it was the risky financial products that have weakened the city. But a strong mayor would have articulated the problem differently — would have fought for pensioners.

Instead, the narrative “fair and equitable” apparently means to treat pensioners the same as creditors. This from an unelected official who is also a bankruptcy attorney, arguably one of the most uninspired career choices for a law school graduate. Not to mention the conflict of interest he represents as former partner of the restructuring firm for the city’s finances — which also has for clients the creditors to which the city is beholden.

Most Detroiters wouldn’t argue Detroit is in a financial crisis. The ideas to fix it, however, are fundamentally different.  Why not target the possibly illegal, complex financial transactions that have sucked up a disproportionate amount of cash?

Detroit’s emergency manager-led bankruptcy is a precedent for the nation.

Financial institutions and pensioners will be treated the same. According to this logic, only what can be counted — pennies, nickels — has value.

What about the value of those retirees who worked their entire lives in civil service and paid into a system that promised a pension and benefits? And, in the case of fire and police, aren’t even eligible for social security. It cannot be “equitable” to treat this person the same as a “creditor.” Yet, the judge has decided equity, fairness is treating both parties the same. Additionally, the judge has determined PA 436, the emergency manager law that paved the way for the bankruptcy, is constitutional and does not violate civil rights in what many argue is beyond the jurisdiction of a bankruptcy court.

Improved city services are a devil’s bargain. No Detroiter who knows the history of broken promises and bad deals will tell you convincingly they expect city services to improve. How can they, when Detroit is on the losing end of this economic shift? The fundamental problem is: How can a city be managed if resources are dwindling? If your citizens remain jobless and structurally unemployed and there are no solutions to deal with poverty, where is the upswing? None of this will make it easier to live in Detroit, unfortunately.

The other component to this problem is the state’s attitude toward cities. The state starves Detroit and other cities whenever it is in its best interest. Expect further cuts to revenue sharing. And for those who believe this is a partisan debate, remember Democratic Governor Jennifer Granholm used the stimulus money — which could have helped embattled cities like Detroit — to cover up a nearly $3 billion budget deficit.

In January, Orr will reveal his planned cuts to pensioners and other unsecured creditors and we will see how the concerned parties respond.

By September, Orr plans to have finished his work in Detroit. He has promised a healthy balance sheet to the new mayor. The job will be finished — neat and tidy — in the way budget-minded people imagine. Yet, there will be no accounting for the human and moral toll of the work done in Detroit.

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